Welcome to TeleTech's Second Quarter 2017 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TeleTech. I would now like to turn the call over to Paul Miller, TeleTech's Senior Vice President, Treasurer and Head of Investor Relations. Thank you. Sir, you may begin.

Good morning. And thank you for joining us today. TeleTech is hosting this call to discuss the second quarter financial results for the period ended June 30, 2017. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TeleTech issued a press release announcing its financial results. While this call will reflect items discussed within those documents, we encourage all listeners to read our quarterly report on Form 10-Q ended June 30, 2017. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. Such factors include, but are not limited to, reliance on several large clients, the risks associated with lower profitability from or the loss of one or more significant clients, execution risks associated with ramping new business or integrating acquired businesses, the possibility of asset impairments and/or restructuring charges as well as the potential impact to the financial results due to foreign exchange rate fluctuations and legislative developments in the United States or other countries where we do business. For a more detailed description of our risk factors, please review our Annual Report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I now turn the call over to Ken Tuchman, TeleTech's Chairman and Chief Executive Officer.

Good morning. Thank you, Paul. I'm delighted to be with you today to share the highlights of another solid quarter and a strong close to the first half. We continue to see positive trends on numerous fronts. The profit optimization improvements that we began executing in the second half of 2016 are yielding the promised results. The refinements to our sales, marketing and account management platform, which we started late in the second half of 2016, are generating early wins, and our end-to-end outcome-based customer engagement platform continues to increase in relevance in a growing market. Lastly, clients are leveraging us for customer engagement programs that are transforming their business in meaningful ways. For the first 6 months of 2017, over the same period last year, we reported an increase in revenue, operating income, net income, earnings per share and cash flow from operations. First half bookings exceeded $200 million and delivered a solid mix across verticals, geographies, segments, embedded base and new client relationships. We continue to prudently balance our growth investments with our profitability targets to take advantage of the market opportunity. We are also delivering increased value through strategic acquisitions, stock repurchases and dividends. I'd like to now share our current view on trends in the market. The opportunity for end-to-end customer engagement platform is growing. In almost every industry, technology has removed the barriers between the customers and brands. This direct relationship is putting increased pressure on companies to deliver exceptional service experiences at every touchpoint with the customer. Whether it’d be in person or through one of the numerous digital channels, when customers experience great service from one company on one channel, they expect and feel entitled to it from every company and every channel. And when they don't get the experience they want, it's…

Thank you, Ken. Good morning, everyone. I'll start with the highlights of our second quarter 2017 financial results, and then provide some commentary on our full year guidance. As Ken alluded to, the early results from the sales and marketing changes and profit enhancement initiatives that we executed are leading to strong financial results in 2017. Additionally, they are providing improved visibility and confidence in the increased volumes anticipated in the second half, in line with our full year guidance. Consistent with last quarter, the non-GAAP results exclude restructure, integration and impairment charges and the assets that we are exiting. The reconciliation of our GAAP to non-GAAP numbers is included in the tables attached to our press release. On a GAAP basis, our second quarter 2017 revenue increased 15.8% to $353.4 million over the same period last year. The revenue growth is comprised of 13.3% of acquired revenue growth and 3.2% of organic growth, offset in part by 70 basis points of negative foreign exchange impact. Our GAAP operating income was $21.6 million, up 33% versus the prior year, despite $3.6 million of restructuring and integration costs associated with the acquisition of Connextions. As you may recall, our integration plan included a $15 million to $16 million restructure and integration charge, leaving approximately $11.4 million to $12.4 million to be recorded in the second half. We are diligently working to complete the integration of the acquisition, and are on track to be materially complete in the third quarter. Our GAAP EPS grew 33.3% to $0.32 in the second quarter 2017 versus $0.24 in the prior-year period. On a non-GAAP basis, second quarter 2017 revenue increased 17.3% to $347.4 million over the same period last year, of which 13.7% is acquired revenue growth and 4.3% organic growth, offset again by 70…

Thanks, Regina. As we open the call, I ask that you limit your questions to 1 or 2 at a time. Operator, you may now open the line.

[Operator Instructions] Your first question comes from Frank Atkins of SunTrust.

First question, I wanted to ask a little bit about the wage and hiring environment and attrition as you -- see going forward.

So the question is regarding the hiring environment?

That's correct, yes.

Yes. I mean, I think that like all companies, with the low employment economy in the United States, we're experiencing tighter recruiting efforts. That said, we are very actively involved with all of our clients and have been educating them and making them aware of the environment. And so, consequently, we're being very proactive on being able to work with our clients, so that we can try to be as competitive as possible, so that we can meet all of our hiring requirements, as well as maintain a relatively normal attrition. That said, it's a little challenging, but it's not anything that we're losing any sleep over at all at this point in time. And I'm only really speaking of the U.S. Outside of the U.S., in all the other countries that we operate in, we're really not experiencing any real challenges that are noticeable.

And can you give us some color in the CMS segment around the telecommunications vertical, and what you're seeing on the technology side there as well?

Could you help me a little bit more with what you mean by color on the telecommunications vertical? Telcom, if you're relating us to potentially other people that you follow, telcom is not an area that we have been very focused on over the last several years. And so it is a much smaller percentage in representation of our overall revenue. So when you say telcom, do you mean fixed line or wireless or both? Is that what you're speaking of?

Yes. I'm speaking of both as well as technology segment clients.

So on the telcom side, again, it's a much smaller percentage than others that are highly concentrated in that area. We actually are in the process of doing a deep-dive analysis of what the exact percentage is because what we found is that we were including things in the telcom category that potentially distorted the number upward, which was unintentional. On the technology side, again, I'm not sure what your question is regarding. What would you like me to give you as far as color? Our technology business is strong. That said, it's also not our highest-focused area. We tend to be focusing much more on healthcare, financial services and automotive and travel.

The next question comes from Mike Malouf of Craig-Hallum Capital Group.

This is Eric on for Mike. I just wanted to touch back on the wage pressures a bit. I know that you said it's been a little challenging with your clients, but can you just give a little more color on the ability to pass those wage increases on? Is it just that they're less willing to pass them on? Or are they just also seeing more difficulty in the hiring environment?

Well, a couple of things that we should start out with is, that we have always been the premium provider in the space. So it's common knowledge that we've always paid our associates more. It's common knowledge that in many cases, clients are paying us a bit more than what they're paying other providers. And so consequently, we are not at the low end of the market in these other markets. As a matter of fact, we were just looking the other day, and we see that there's several companies that are paying a couple dollars an hour less in the U.S. then we're paying, and in some cases $3 and $4 an hour less. So we're not going after the same types of clients. We're very focused on providing the highest quality service. And we know that the only way we can provide high-quality service is to try to have continuity with the employee as well as to be able to get the cream of the crop of the employees. And it's why clients are -- tend to be willing to pay us a bit more. And so what I would say to you is, is that I think we might be a little bit less affected, in that we're not paying wages that are at or below fast food-type wages, which is where I think that there's a lot of pressure, because some of those front-line wages are coming up. As it relates to our ability to pass cost on, many of our contracts, a high percentage of them, have annual COL, cost of living increases. And we calculate that locally by the market that we're in. And we are working with the clients well in advance, so that they understand the direction of where it's going. And yes, that is in fact passed on and recalculated in the rate. Now we don't have it in every single one of our contracts. And in the ones that we don't have it in the contracts, we proactively work with clients to make them aware of how tight that particular market may be or whether or not there's an increase in attrition, et cetera. And what we're finding in the majority of cases is that clients are experiencing the same thing themselves, and that they are agreeing without a cost of living increase to pay us more, so that we can pay our frontline more. So what I would say to you is, is that right now has not been a huge issue for us. And we continue to plan on educating them as to where the market is going and to try to stay in front of it as much as we can.

And then, Ken, just a follow-up. I think last quarter, you mentioned that you've also been working towards having variable performance clauses in your contracts. Are your clients still pretty receptive to this? I just wanted to sort of get an update on the outlook for this and if this is potentially a point of growth for you guys.

I think it depends upon the part of our business. But the answer is yes, I think that we're trying to position all of our businesses to have more of an outcome focus, and so what we're trying to do is design solutions that have defined outcomes, and then get rewarded for those defined outcomes or for achieving and overachieving on those defined outcomes. In some areas, we're newer at it. In the technology areas, we're just now building products in that area, products that are more outcome-based. And that will start coming online next year. In areas like sales, we've had those capabilities for many years. And absolutely, clients want to pay in a variabilized way, and they want to pay off of performance. And in the area of what I would call driving service and support, we are actually seeing a mix there. We have some very large clients that have decided to experiment and move in that direction. And I would say that it's been very successful for both parties. And so I can't tell you whether or not this is a trend that all clients would like to move to or not, because frankly, I think many of these -- each client is individual, and they look at it differently. But what I would tell you is that in areas where we have a significant amount of experience and actuarial data, and where we have technology that can drive enhancements to the outcome, we're very interested in having more of a reward-based system that's tied to outcome.

Thank you. The next question comes from Bill Warmington of Wells Fargo Securities. Your line is open.

It's Bill DiJohnson on for Bill Warmington. Just had a few questions for you guys. If we could start with bookings. You had a strong revenue quarter. And bookings were relatively strong. But even adjusted for divestitures, they were down year-over-year. Is there a simple reason why the trends between revenue growth and bookings growth have been diverging recently? Is it simply timing?

Regina?

Yes. I don't -- I mean, I would say that we're fairly consistent with the first half of last year. There's always a timings element to the booking. We continue to believe that we'll have growth in our bookings on a full year despite the assets held for sale. I'd also say that I think you're seeing the increase in revenue in total, obviously, has a lot to do with the two acquisitions we did, Atelka and Connextions, but we do have meaningful organic growth in CMS. And I would just say it's good execution against the bookings in the second half of last year, as well as -- we've had meaningful -- when you look at the mix of bookings, we've had good growth in CMS bookings in the first half. And a lot of that -- 80% of our bookings is in the embedded base. And so a lot of that is in known, understood relationships, where the ramp time takes -- it's less time to get to revenue.

And then, I guess, since you brought up CMS, can we talk a little bit about -- I mean, it's such a strong quarter. It's up 8% organically year-over-year, I think, you said. Was there an element of timing to that? You mentioned a few verticals were particularly strong, but is there anything geographically, too, to it?

Yes. I mean, again, it's up very significantly, given Atelka and Connextions were not in the same quarter last year. And then, yes, on an organic growth basis, it has also increased. But I really just gave you that answer. We had good second half bookings last year as well as very good growth first half of this year versus first half of last year in CMX as a component of the mix of our overall bookings. And a lot of that is an embedded base. As you know, that's a significant part of our strategy, to yield really strong growth from our embedded base. That's starting to work. And then volumes fluctuate. So we just -- we happened to have a very good volume -- volumes in the quarter are higher than we expected. And as I said, we believe that you'll see continued strong growth from CMS, given its backlog and given its seasonal fourth quarter.

I also think that you're seeing -- clients are expressing the interest in consolidating the number of providers that they're doing business with. Most clients, if you listen to the script, are really getting very, very focused on quality and very, very focused on the actual experience that's being delivered. They have much more sophisticated tools today than they even had a year ago or two years ago on how they can measure a client's satisfaction, whether it be with Net Promoter Score, whether it be with client sat, whether it be measuring Dsat, on and on and on. And so consequently, they are absolutely -- we're seeing them paring down to fewer suppliers that they think can deliver more reliably. And it's our hope over time that that will create a positive opportunity for us since we've always been very focused on driving what we believe is the highest quality experience. And so we think that as more and more clients understand the impact of what bad service is doing for them that there's going to be much more of a focus of this being less of an area, where companies are using it as an expense reduction center, but more of an area of where they're using it as a customer retention, a customer loyalty and a brand-building capability. And so more and more of our clients are talking about how critical this is to them in the marketplace since their customers have become so vocal with their ratings and with their blogs and with their social media postings, et cetera. So -- I mean, that's really the point that I was trying to get across in my script as to why we believe there's a turning point, and that the business is going to become far less, shall we say, transactional and far more strategic to our clients.

The next question comes from Frank Atkins of SunTrust.

I wanted to ask about this change in client behavior that's embracing the customer more and more from an end-to-end perspective? Can you give us an update of how many customers are using multiple of your segment, and what type of level that you're having conversations with in terms of C-Suite versus procurement officer?

Yes. At this point, we have about 1/3 of our customer base who are consuming more than one capability or where at I would say more than one segment's capability.

And I think that what's important to note is on the newer logos that we're winning, in almost every case, the majority of the new wins are consuming multiple, meaning more than 2, capabilities simultaneously from the very beginning, because it's now part of how we're designing the offering. And so I think you'll see that number increase as time goes on since all of our new logos, we're very focused on that taking place.

And then last one for me. Can you talk a little about the CGS group and the visibility that you have there looking forward?

Regina? The question was on visibility for CGS.

Yes. Really, for the most part, for CMS and CGS, the bookings by path will dictate what the revenue for the full year will be. We do have opportunities in some of the Q3 ramps, but the bulk of our revenue is based on the current backlog. And so as I said, we expect -- by the way, we expect CGS to continue to be in line with the guidance that we set for it. It's probably flat on revenue. It will be slightly better on operating income. But we expect it to be more or less flat to Q2 and Q3, and then tick up a bit based on the backlog we have. We start to -- towards the back half. We start to get rid -- through some of that turnover that we had last year, so some of that turnover was in Q3 and Q4 last year. And so the compare is more apples-to-apples as we go forward into the second half.

The next question comes from Joan Tong of Sidoti.

This is a question, maybe a higher level question for Ken. Can you -- like you talked about the tangible difference of your Humanify platform, this new go-to-market strategy compared to how you get things done in the past. Obviously, you have been selling end-to-end solutions for a while, but why is it different this go-around?

Well, I think the best way to explain it is the following. We've had 4 segments for -- I don't want to give you the wrong number of years, but for multiple years. And we -- the reality is, is that we have held each of these segments feet to the fire for producing profitable outcomes with each of their business units. The good news is, for the most part, they've done what we've asked them to do. The bad news is that by them operating in that fashion, they are rather independent and a bit of an island. And they're approaching clients independently, in many cases seeking their own logos independently. Under Humanify, the way we're now approaching is we're approaching basically all capabilities to a much more focused client base. And so it's much more about an end-to-end enterprise solution that wraps strategy and technology and service to execute and ignition of growth services and digital enablement all into one, as one offering. And therefore it's less confusing, and it's more digestible for the client. And it's actually -- makes more sense for us to be able to deliver a solution that is designed end-to-end, but that has defined outcomes. Whereas before, it was a bit more of -- we would start with a particular area, CMS, let's say, and then over time, we'd introduce a strategy group or we'd introduce a different group. And we just think that this is a much more unified approach to the marketplace. It's simpler to understand. And more importantly, we think we'll have far more efficacious results for our customers, for our clients.

And then my next questions relating to the -- the two acquisitions. Can you give us an update on the progress of the integration of the 2 acquisitions that you made recently?

Yes. I would say Atelka, at this point, is really almost for all intents and purposes 100% integrated. And we see a real opportunity for further synergies in terms of now that they're on our platforms, just driving improvements in the talent acquisition, training, visibility and so on, as well as leveraging those clients now that we're settled down to expand the balance of the business. The Connextions, we're in the heat of the moment. Q2 and Q3 were always planned as very intense quarters to be able to integrate Connextions, which is a very different and more complex situation, given it was a carve-out. But we're well into it. The balance of it will be done in Q3 because it was important to complete it prior to the seasonal volumes that will hit us starting in October. And we're on track. We're on track from the transition of the sites, the acquisition of the talent, the development of TeleTech's systems for the connections environment. And as I said earlier, we expect to hit our targets. And that Connextions, which was an operating loss in the quarter for a couple of reasons, will definitely have profit in the third quarter, and in the fourth quarter be onto a premium margin to the core business.

That is all the time we have today. Thank you for your time and continued interest. This concludes the TeleTech's second quarter 2017 earnings conference call. You may disconnect at this time.